4 options in managing the City Golf Course – An opinion

By Mike Lednovich
Fernandina Beach City Commissioner
November 25, 2020

There are 4 options in managing the City Golf Course – which is the best?

We know in life that there are always choices to make. The key to success is identifying and making the best possible choice.

So it is with the City Commission’s choice in going forward with how to manage the City owned 27-hole golf course.

On Dec. 13, the City’s management contract with Indigo Golf (formerly Billy Casper Golf) expires after a 10-year run. During that time, the golf course has lost nearly $1 million, with the closure earlier this year due to the pandemic accounting for almost $200,000 of that deficit.

While losing that $1 million, the City has paid Indigo Golf approximately $900,000 in management fees.

Therein is the crux of the problem. Is this any way for the City to run a business that is meant to be self-sustaining?

Management of the golf course is on the City Commission’s Dec. 1 agenda, and with time running out on the Indigo contract, a decision will have to be made.

According to golf course experts Golf Property Analysts, in Conshohocken, Pa., there are four options City officials can choose from to manage a municipal golf facility. Larry Hirsh, president of the company, identified them as:

1. Direct Management: Where the city uses its existing employees to manage the entire golf course operation, usually as part of the park and recreation department.

This method saves a ton of expenses, but the golf course can suffer both financially and condition-wise due to a lack of golf operations expertise.

2. Indirect Management: Where the city hires experienced golf industry professionals to operate the golf course and report to the city manager.

This option is being proposed by City Manager Dale Martin, who says the City will eliminate the $90,000 Indigo Golf management fee.

The downside is that the City will add about six full-time employees and carry the burden of employees’ benefits and pension expenses adding about $100,000 beyond the contract fee savings. So, how do you make up this $100,000 in added expense?

3. Private Management: This option reflects the current Indigo Golf situation in which the City retains a third-party, private management firm on a contract basis for an extended period. In some contracts, the third party and the City share revenues and costs, though often the third-party manager has revenue incentives built in. Indigo Golf has an incentive clause in its contract, but in 10 years has never met the gross revenue incentive threshold.

The advantages to private management is that the City has no employees and the associated benefits/pension costs. Indigo Golf, which manages 160 courses nationally, also claims the City saves money by leveraging Indigo’s collective discounted purchasing power.

4. Lease to a Private Firm: Where the right to operate the golf course is

leased entirely to a private firm or individual, which/who retains all the revenues and is responsible for the operating expenses in return for a rental payment, which often includes performance percentage rents.

The City is currently using this option for the Amelia River Golf Course located on airport property. The lease method has never been explored by the City in regards to the Fernandina Beach Golf Course.

So where do we stand going into the Dec. 1 City Commission decision on the future of the golf course?

First, given the four available paths before us, I believe Commissioners don’t have enough information to make the best decision for the citizens of Fernandina Beach and the golf course as a business.

Here’s what I propose in order to make such an important decision:

1. Negotiate a contract extension with Indigo Golf (six months to a year).

2. Issue a Request for Proposal for outside golf course management. There are 20 golf course management companies in the U.S. Once received, pick the best offer.

3. Issue a Request for Proposal to lease the golf course. Again, pick the best offer.

4. The City puts together a Indirect Management expenses/revenue business plan.

5. The City Commission then compares the best outside management contract, lease contract and Indirect management plan and makes a decision by December 2021.

The best decisions are made with the best data collected and analyzed. Poor decisions are made in a hurry with few facts. We need to take the time to make the best decision.

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Bruce Smyk
Bruce Smyk (@guest_59638)
3 years ago

A little background – I was on the RFP committee 10 years ago and served about 5 years on the City’s golf committee as either chair or vice-chair. Regarding Mr. Lednovich’s and proposals 2 and 3, the best offer is sometimes different from the cheapest offer. The commission must keep that in mind. Go cheap nd get burned. The operation of a course is complicated; the income is erratic (rain, wind, COVID). To choose an alternative, the commission has to balance many factors – quality, cost, credentials, effort, service to the citizens. If the City is looking for guaranteed income, lease it and lose quality control. Also, with the past financials, who would pay to lease a losing proposition? Parks & Rec – no expertise, added payroll expense. Continue with management – the short-term solution; maybe the long-term one as well, with the City subsidizing the losses ( as a service to its constituents and tourism). Currently, the City has no time to make a thoughtful decision. Extending with Indigo is the only viable option.

DAVID LOTT
DAVID LOTT(@dave-l)
3 years ago

I am sure the $900,000 in management fees cited in the fifth paragraph is a typo since $90,000 is cited as Indigo’s management fee in the Option #2 details. The reality is that the City shot itself with the lease of the airport property that was developed into a semi-private golf course. Until that time, the city’s municipal course was the only public course on the island and off-island courses generally had more expensive fees (albeit were in better condition). The airport enterprise fund gets $225,000 a year from that lease which by FAA rules must be retained and spent on airport related improvements; all to the detriment of the city’s municipal course.

As to options, clearly #1 needs to be done for a one-year extension in order to give the city the time necessary to figure out how best to proceed. To bring this issue up in the public purview at the 11th hour is an example of a Ready, Fire, Aim management practice that can only lead to bad decisions. During the extension, follow through with the #2#4 options with a well crafted RFP process; BUT, the analysis needs to be completed by a neutral, third-party group unlike the Marina RFP process.

I am sure there will be a large contingent of the community that advocate for an Option #5 – either the complete closure of the golf course and turn it into a conservation/park area or sale of one of the 9 hole courses (which would likely generate a whole host of legal issues since the property was originally part of the Navy training facility). From my perspective, any golf course management option is going to be faced with an underlying problem that the design of the golf course is way outdated with no synergy between the three 9-hole courses. Over the years, there have been many suggestions for a redesign of the courses but such an effort would cost millions of dollars – money that clearly isn’t there. Until the impact of the COVID pandemic was felt beginning in the early spring, the golf course industry economic state had somewhat stabilized over the previous five years; although still way below the strong results prior to the Great Recession time period. Golf course superintendents indicate that their key concerns outside the long term impact of COVID are skilled labor availability and supply costs for equipment and grounds maintenance. Of course, weather is a factor beyond control. Have a skilled course superintendent and agronomist is critical as a turf disease can wipe out the playability of a course in just a couple of weeks.

Golf professionals will tell you the game is 90% mental and 10% mechanical. That is what the City needs to do. Take a step back and carefully collect information and then act.

Mike Lednovich
Mike Lednovich (@guest_59646)
3 years ago
Reply to  DAVID LOTT

The $900,000 is a ballpark amount the City has paid Indigo in management fees over the term of the 10-year deal.

Dave Lott
Dave Lott(@dave-l)
3 years ago
Reply to  Mike Lednovich

Mike, thanks for the clarification. Of course in the Option #2 details it says the city will avoid the $90,000/year management fee but incur “employees’ benefits and pension expenses adding about $100,000 beyond the contract fee savings.” Where is the logic in that and does that include food & beverage personnel?

Don Grinter
Don Grinter (@guest_59642)
3 years ago

Another option is to sell 9 holes to a developer reducing the cities expense and then pick someone to lease the remaining 18 holes. The main problem and why the course loses money is that is a lousy course. Don Grinter

Dave Bender
Dave Bender (@guest_59645)
3 years ago

I think this post by Mike is well thought out. We need competent management at the golf course. We do not need a knee jerk reaction because a time constraint “snuck” up on us. I have lived in Fernandina and belonged to the course for well over 15 yrs. The coures is in the best condition it has ever been during that time. I can only wonder if that’s because we have had professional management for a number of years. Lets take our time and make a smart decision.

Joe Blanchard
Joe Blanchard(@jlblan2)
3 years ago

I agree with both David Lott and Bruce Smyk. I guess the city was too busy with other issues, like planning a riverfront park, to see the end of this contract coming and prepare a plan in plenty of time to make a sound decision.

Jack Knocke
Jack Knocke (@guest_59651)
3 years ago

This whole process has been managed ineffectively by the City manager. Similar to the walkover debacle and the marina upgrade/FEMA non-reimbursement, Dale Martin is not doing the required research necessary in the right timeframe. He is asking the commissioners to make a decisions without full data or reasonable alternatives.

PLEASE DO NOT let Dale Martin run a golf course! We have already lost a million dollars on the current model. We need a management company to pay the city for rights and collect revenues with no more risk.

Has anyone considered closing 9 of the 27 holes and figure a useful and profitable option for those acres?

Losing money every year should NO longer be an acceptable option.

Thanks for your leadership on this issue Commissioner Lendocich.

Al MacDougall
Al MacDougall (@guest_59652)
3 years ago

The recently passed referendum question stipulates that any lease of the golf course (or part thereof) requires voter approval (70%).

Such a high bar and such widely divergent opinions virtually guarantee no lease option will earn voter consent.

The City owns the golf course, the City must run it—alone or with hired assistance.

Edward Kelly
Edward Kelly (@guest_59656)
3 years ago

Not sure which is more irresponsible…losing $1mm or waiting to the last minute to make a decision about the future. Either way, clearly, it is time to remove those involved in the decision making process. With a small municipal course, there is an opportunity to hire a single, experienced, manager and use students as a combo employee/ learning development program for agronomy, F&B, and business management. All it takes is hiring the right manager to drive the program…

Bruce Smyk
Bruce Smyk (@guest_59662)
3 years ago

There is another aspect, not mentioned. We pay Indigo $84,000 per year. An advantage is that Indigo is a national organization with strong buying power. Mike, take a look in how much Indigo has saved the City in insurance, pro shop items, fertilizer, seed, sand, equipment purchase. How much equipment for specialized purposes was borrowed from other Indigo courses for free instead of rented? How much does it save the City in fringe benefits since it directly employs the staff? digo Basically, you can deduct that from the $84,000 because that is money we would pay to someone anyway.

Lucy Bryan
Lucy Bryan (@guest_59672)
3 years ago

Excellent recap of the situation and options. The lease extension option seems the best choice to allow the city more time to evaluate the data. Thanks Mike.